Tips For Picking a Loan Term For Your Home Mortgage in Portland

October 9, 2019
Last updated:
March 22, 2022
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When it comes to buying a house in Portland, OR, it would seem as though the actual home and the location it’s in are the most important things to decide upon. After all, you want to make sure the place suits your lifestyle and will be able to hold its value over the long term.

But as important as these factors may be, there’s another component to the equation that will need attention even before you start pounding the pavement in search of your next home: your mortgage. Without one, it would likely be impossible for you to be able to afford such a major purchase.

But the mortgage itself will need to be ironed out to make sure it’s the right type of home loan product for you. Things such as the interest rate will be important because it will impact the overall cost of your home loan. And different loan programs Portland will also have their own down payment minimum requirements and potential mortgage insurance premiums that should be considered.

But in addition to these parts of a mortgage, you’ll also want to decide on the term of the contract. The mortgage term plays a big role the commitment you need to make to your mortgage obligations and the overall cost of your home mortgage Portland.

Let’s take a closer look at what a mortgage term is to help you choose the best one for your situation.

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What is a Mortgage ‘Term’?

It’s common for people to assume that a mortgage term and maturity date have the same end date. While this may be true in many cases, it shouldn’t necessarily be assumed.

The term “maturity” refers to the date that the very last payment is due, which means your mortgage loan amount will need to be entirely paid off by then.

A mortgage term, on the other hand, represents the time frame that you are legally obligated to fulfill the promises made on your contract with your lender. It’s essentially used to calculate your mortgage payments. And while the term and maturity dates are often the same, there are certain instances where they may not be.

In Portland, OR, the most common mortgage terms are either 15 or 30 years. This applies to both fixed-rate mortgages – which means the interest rate remains fixed throughout the term and will never change – and adjustable-rate mortgages – whereby the rate changes at specific intervals.

That said, there are actually four popular mortgage terms that borrowers tend to opt for: 10-, 15-, 20 and 30 year terms.

Once the term expires, you’ll either have to pay off the entire loan amount in full, refinance your mortgage, or renew it; either with the same Portland mortgage lender or another one. You’ll receive notification that your mortgage term is expiring soon a few months before its expiration date, so you’ll have plenty of time to decide what course of action to take when the time comes.

How Do You Choose the Portland Mortgage Term That’s Right For You?

The mortgage term that you choose will have a direct impact on how long you’ll have to pay your mortgage off in its entirety, how much you’ll pay in interest over the life of the loan, and even how much you pay every month.

So, should you go with a shorter term of 10 to 15 years, or something longer in the form of a 30-year term?

Long mortgage terms

There are plenty of reasons why many buyers tend to opt for longer mortgage terms compared to shorter ones. And perhaps the biggest perk of longer mortgage terms are the smaller mortgage payments that need to be made every billing cycle.

Longer term periods give borrowers more time to pay off their loan amounts. That means every month’s payment will be smaller compared to those with a shorter term period. However, the amount of interest paid over the life of the loan will be much higher compared to shorter terms. That means you could realistically pay tens of thousands of dollars more in interest with longer mortgage terms compared to shorter ones.

Not only that, but longer mortgage terms typically come with higher interest rates compared to shorter terms. So, this will also contribute to higher amounts that you’ll wind up paying in interest once the term expires.

Short mortgage terms

Unlike long mortgage terms, shorter terms are beneficial in that they cost much less over the life of the loan. With a shorter term, there is less interest charged on the principal loan amount, which means you can save quite a bit of money by the time the maturity date arrives. This is the biggest benefit of a shorter mortgage term, along with the fact that you will be mortgage-free sooner.

Further, shorter mortgage terms also tend to come with lower interest rates, which can play a key role in the overall cost of your mortgage when all is said and done.

However, you’ll have much less time to pay the loan amount. And because of this, the monthly mortgage payment amounts will be a lot higher than they would be if the payments were stretched out over a much longer period of time. As such, many borrowers may not find shorter mortgage terms feasible, as more of their income would have to be dedicated to paying their mortgage every billing period.

Let’s illustrate the differences using an example. Assuming a loan amount of $300,000 at a 4% interest rate, your mortgage payments on a 15-year term would be $3,142 per month. On a 30-year term, your payments would be much lower, at $2,355.

However, even though you’d be spending around $800 less every month with a longer mortgage term, you’d be spending far more in interest. With a 30-year term, the interest accrued would be $215,607 compared to $99,424 on a 15-year term.

What About Hybrid Mortgages?

Hybrid mortgages offer a term that comes with a fixed interest rate for a certain amount of time, after which they can be converted to a term with an adjustable interest rate. Fixed rate mortgages offer more stability in the form of a fixed rate and more predictable payments, but adjustable rate mortgages allow borrowers to potentially take advantage of lower rates if they’re expected to decrease in the near future.

Which Mortgage Term Should You Choose?

At the end of the day, the mortgage term that you end up selecting will depend on your particular financial situation and what you’re most comfortable with. If you can comfortably afford higher mortgage payments every month and like the idea of being able to be mortgage-free sooner and pay far less in interest over the life of your home mortgage Portland, then perhaps a 10- or 15-year mortgage term may be best suited for you.

On the other hand, if you’re trying to minimize the amount you have to pay in mortgage payments and don’t necessarily have the excess income required to beef up your payments, then a 30-year mortgage term might be easier for you to handle.

Be sure to speak with a seasoned mortgage specialist who can help you navigate the world of mortgage terms to help you make the best decision for you.

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Need a Mortgage?

At Sammamish Mortgage, we’ve been helping homebuyers obtain the mortgage they need in Portland, OR, and all over the Pacific Northwest. We offer a wide variety of mortgage programs and products with flexible qualification criteria. We’ve got a long track record of successful deals after serving the Pacific Northwest since 1992, and we’d love to help you too. Contact Sammamish Mortgage today to get a no-obligation rate quote!

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